Creation of incentives to producers andconsumers to make better use of resources.

It aims to internalize external cost into the price of agood through economic instruments

Principle 16 of Rio Declaration states:

“National authorities should endeavour to promote theinternalization of environmental cost and the use ofeconomic instruments, taking into account theapproach that the polluter should, in principle, bear thecost of pollution with due regard to public interest andwithout distorting international trade and investment(UN, 1992)”.

Attractiveness of Market based instruments

Achieve the desired effects at the least possiblecost

Easier to enforce

Equal to everybody

Generate revenue

Using Markets

Use the market and price signals to make theappropriate allocation of resources.